December 13, 2001

View From Lodi, CA: Credit card rates approaching loan-shark levels

As usual at this time of year, I’m giving my credit cards a pretty vigorous work out.

I’ve got a couple of MasterCard and Visa cards which I rotate in no particular order.

And I have my trusty American Express card when I don’t want to stretch a $35 dinner into a $100 tab by making 10 payments at 20 percent interest.

I may be missing the stories but where is the outrage over the differential between what banks pay for money and what they charge?

With the federal funds rate hovering at 2 percent and credit card rates at 20 percent, shouldn’t someone be screaming?

When the spread is 18 points, we’re approaching loan-shark levels.

Now if I were George W. Bush or Alan Greenspan and I wanted to kick-start the economy, I would lean hard on the bankers and commercial finance companies to lower their consumer interest rates.

I would insist that banks and finance companies offer credit card users a method to refinance their debt in time of low interest rates. If you can refinance a mortgage, why not a credit card balance?

Bankers are forever telling us that they have to absorb huge losses in their credit card divisions on delinquent accounts. But banks and finance companies have little at risk since they can deduct losses on bad debts off their income tax.

Talk about a sweet deal: Charge usurious rates and if you get stuck, send the bill to Uncle Sam.

Between the credit card rates and the fees charged for late credit card payments, overdrafts or insufficient funds, the banks have got one of the best con games going.

The fee structure at your friendly neighborhood bank is enough to make you keel over. Banks charge from $20-$35 for overdrawn or insufficient-funds checks. Even allowing for the fact that bankers obviously want to discourage bouncing checks, the fees are excessive.

A retired commercial banker wrote in an Internet newsletter that the actual cost to the bank for those transactions gone awry are about 35 cents plus another 34 cents for postage. A mark up from less than a dollar to $35 is very impressive.

According to the same newsletter, some banks have determined that high-overdraft and high-balance accounts are the most profitable while medium balance, orderly accounts were unprofitable.

Until it was declared illegal, banks tried to guild the lily by “posting high.” In other words, in any batch of checks payable, banks paid the biggest check first — claiming that it was probably the most important — and then bounced the $5 and $10 checks at $25 a pop.

Another killer fee is the late payment charge. This is especially painful if you have paid your bill on time and have to slug it out over the phone with a bank “customer representative.”

Recently, I took a credit card payment into the local bank two days before the due date. The teller told me — with a straight face — that I may be assessed a $29 late charge because posting to the account can take three to five days. Remember that this conversation took place while I was standing in the bank.

If you’re tired of hearing about how your payment is late even though you know you sent it on time, you have several low-cost options available.

For $3.20 for two- or three-day Priority Mail plus 35 cents for “delivery confirmation,” the U.S. Postal Service provides proof positive when the creditor received your payment.

Your Priority Mail will be given a 20-digit number. By calling 1-800-222-1811 and punching in your number, a voice will tell you the exact day your payment was received.

Another means of documenting when you sent what to who is to bank over the Internet. Millions of consumers are protecting themselves against excessive late fees and the hassles related to them by opening online banking accounts. You can pay your bills on time and prove when you have paid them.

Open a low-fee checking account that has a bill-paying feature. You’ll have instant access to all your accounts and the flexibility to transfer funds.

Or you can sign up with a third-party bill paying company such as:

• Check Free Corp., backed by Microsoft.

• Paytrust, Inc.

• PayMyBills.com

• StatusFactory

The charge may be less than $10 per month.

The banking lobby is way too strong to expect any help from Congress regarding fairer fees.

And don’t expect your banker to voluntarily adopt a “Merry Christmas” attitude toward fees.

These days, the consumer has to be his own best friend.

Joe Guzzardi [email him], an instructor in English at the Lodi Adult School, has been writing a weekly column since 1988. It currently appears in the Lodi News-Sentinel.